About Art of Automation

On my planet far, far away, it's all about the pips. And now that I'm joining the human race here on Earth, I've decided to impart my knowledge on currency trading systems with your world. Join me as we try to find, develop, backtest, and rate different mechanical, expert advisors (EA), and algorithmic forex trading systems that may be suitable for both newbies and experts alike.

System Review: Red Light Green Light System

Good day, humans! I have finally finished backtesting the Red Light Green Light system of vincejg327. Because the system was almost entirely mechanized, I hardly changed the original parameters, making the results of the backtest much more meaningful. If you want to know the rules of the system that I used, just head on over to my post last week.

I tested the system for 8 weeks, which may not seem like much, but keep in mind that the system was tested on the 15-minute chart! This gives me a decent sample size, given the amount of time I had to work with.

Now, without further ado, here are the results:

Profitability: 18/20

The win rate of the system isn’t high, but it isn’t abysmal either. It stands at 38.46%, which is a good number considering the average winning trade is around 8.25 pips while the average losing trade is only 5.69 pips.

But of course, at the end of the day, it is the net % gain that matters. The total % gained by the system for the 8-week backtest is 15.53% (233 pips), which is pretty high, even for my alien standards. Assuming there are 4 weeks per month, we can say that the system had an average monthly gain of 7.77%. So far, the Red Light Green Light system has scored the highest among the systems I have graded in terms of profitability.

A word of caution though… always remember that past performance isn’t indicative of future results. After all, 8 weeks is still just 8 weeks.

Risk Tolerance: 16/20

The system had a whole bunch of risk management tools in place. Not only did it use a fixed initial stop, but it also employed a trailing stop and had conditions for an early exit, which did well to limit risk and cut losses early.

I believe these played a big role in keeping average losses smaller than average wins. The fact that the average loss (-5.69 pips) is much, much smaller than the full loss (-15 pips) means the system was able to avoid realizing the full 15-pip loss on more than a few occasions.

But I do wonder if the system’s use of trailing stops is a bit too conservative. I observed that on a few occasions, it was a bit too tight and led the system to miss out on profitable moves. But then again, I may just be nitpicking! *kzzzrt!*

Newbie-friendliness: 8/10

All in all, I would say that the system is quite easy to use as the rules are strict and leave little to interpretation, just how we robots like ’em! With rules like these, any newbie can learn to trade like a robot!

Also, according to vincejg327, the system may be used on various major pairs and time frames – a big plus for newbies who are still in the process of finding the right pair and time frame to trade! But take note, humans, my backtest results only speak for the 15-minute chart of EUR/USD!

Total Score: 42/50

Tallying up its points, the Red Light Green Light system gets a total score of 42/50. I do believe that that’s the highest grade I’ve given so far!

So have we found the Holy Grail? Well, to be honest, I’m not quite convinced. As impressive as it is, it isn’t perfect.

For one, the system has a tendency to catch tops and bottoms, giving signals to buy just as the market is topping out and signals to sell just as it’s bottoming out.

Also, the system’s not-so-impressive win rate and tendency to have long losing streaks does leave room for improvement.

But overall, I would say this system is solid and certainly deserves a deeper look, which is why I invite you earthlings to try it out and share your thoughts on it! Who knows, you may just discover a little tweak that’ll turn this system into THE Holy Grail!

I’ve decided to combine this with the 3 Ducks system from April and forward test it. The 3 Ducks has been quite effective for me personally since I discovered it from this site, but I see the combination here removing some discretionary elements that exist in it.

Although the original 3 ducks is objective when a signal presents itself, whether you determine it is a quality signal or not to trade is a discretionary thing, requiring some learned intuition from experience.

This RLGL system is also very objective, but entering at market after a close beyond the EMA(9) sometimes either sees a retrace that can get one stopped out, or doesn’t allow for a potentially better entry price later which helps hit TP more often (personally I always set +3R that works with a special MM I use).

So what I see working well is the RLGL used on the H4 chart (like the 3 Ducks) and wait for a trigger. When a trigger happens, see that it also satisfies 3 ducks SMA(60) on H4 and H1. Then make a 3 Ducks entry by going down to the 5min and entering on the last H/L (and 60sma satisfied). Also, as advised by the method, make entries only between 7am-4pm GMT.